Product Description

When a trend has already begun, does that mean itís too
late to get in? Not necessarily. This trading technique can
help you get into a trend so you donít have to miss trading
opportunities.

Computer charting software that allows traders to create
their own custom studies and formulas opens the
door to a world of experimentation that could lead
to the development of a new trading indicator. But it
isnít always necessary to go to those lengths in order
to find useful trading tools. Sometimes simply combining
the components of one well-known indicator with another is enough to create a type of synergy that can
enhance trading.

For several years, one of my templates for short-term trading
has included something I call the DMI stochastic, which I
use mainly to identify potential entries into an existing trend.
The template consists of a trend-identifying oscillator based
on indicators from J. Welles Wilderís directional movement
index (DMI) and also a momentum indicator derived from
that oscillator. Together, they offer two indicators that capture
three powerful technical analysis basics: trend, momentum,
and support/resistance. While not as reliable for intraday
trading, they work well in 60-minute, end-of-day (EOD),
and weekly time frames. This article shows how to create
and apply these indicators using EOD charts.

DMI oscillator

Within the suite of indicators that make up Wilderís directional
movement index (DMI) are the plus directional movement
indicator (+DI) and the minus directional movement indicator
(‑DI). They provide the foundation for the more widely recognized
average directional index (ADX). Whereas the ADX
offers information about the strength of price movement but
not its direction, the +DI and ‑DI furnish information about
the positive or negative direction of price movement over a
period of time.

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